Budget spells of loans, taxes and low growth

Economists, making a dig at the 2019 budget, proffered it as one full of taxes and not poor- friendly, and alternate thinkers of the likes of Emeritus Prof. W. D. Lakshman opines a 5 per cent growth target is sufficient in a sustainable and equitable economic environment.

Prof. Lakshman of the University of Colombo noted that most economists are concerned about the economic growth and believed in the thinking that a 7-8 per cent growth needs to be registered to ensure Sri Lanka on the path to a growing economy. He made these observations while chairing the discussion on “Budget 2019: Where are we heading?” held at the Department of Economics, University of Colombo on Wednesday.

He pointed out that if carried out sustainably and equitably why not go for a 5 per cent growth and insisted that it was important to “think fresh and think about the fundamentals.”

Commenting on the increase in the number of beneficiaries of Samurdhi, he noted that these safety nets do not empower people but on the contrary make them more dependent. In this context it does not help to reduce poverty either.

Further Prof. Lakshman pointed out that micro credit loans were found hard to pay back in relation to the increase in the number of loan schemes made available in this year’s budget. “This is not a poor-friendly budget.”

Giving a corporate perspective of the budget, Maliban Biscuits Chief Financial Officer Dilum Bellana elaborated on the income taxes levied under the current budget pointing out that the businesses were faced with the clause of having to be “predominantly engaged” in that particular aspect of business to receive benefits of lower rates of income tax.

He explained that in this context it was interesting to find out whether the government wanted them to establish more companies for the separate units of their businesses in a bid to cash in on these benefits.

Mr. Bellana noted that if they were to carry out exports under the same company it would not help to obtain the benefit of a lower rate of income tax but on the other hand they had to establish another company for the export business to ensure that it falls in line with the requirement of being “predominantly engaged” in that particular business to obtain the relevant benefits.

He said that the Economic Service Charge (ESC) was not impacting on the bottomline but was affecting the inflow of cash.

With more laws and tightening of the strings on businesses, it would only make Sri Lanka less attractive compared to countries like Myanmar, Bangladesh and Ethiopia that today seem to gain more attraction from investors.

Senior Lecturer of the Department of Economics Prof. Sirimal Abeyratne moderating the session observed that Sri Lanka had the lowest growth on record so far last year at 3 per cent even compared to the 4 per cent forecasted figure of the World Bank.

“We are in the fastest growing region in the world in South Asia. But we are yet to see how we can be part of that growth,” he said.

The budget would entail an improved revenue collection and the government is said to be in a comfortable position in this election year.

Going by the budget proposals, Prof. Abeyratne noted that revenue collection is expected to increase but a notable factor pointed out from the previous year’s budget was that the there was under-spending of over Rs.200 billion.

In this respect, he noted that the public sector was not capable of spending due to the bureaucracy; but pointed out that the budget does include the fiscal policies as meted out by the International Monetary Fund (IMF).

Institute of Policy Studies Executive Director Dr. Dushni Weerakoon also highlighted the fact that fiscal policy is set in the medium term framework and noted that this was not a populist budget and said that the outcome of it would be stability in terms of moderate output.

But the revenue collection would mean a hit on the poor masses due to heavy taxation policies and with a high interest rate charged on schemes established under the Enterprise Sri Lanka initiative this concept is likely to take a toll.

2019, Dr. Weerakoon explained is likely to be an year where the government would be a heavy borrower with domestic financing expected to double to 4 per cent of GDP.

In this context she pointed out that fiscal consolidation is a must and that it was important due to the heavy public debt.

She also explained that while the proposed loan schemes sound good the government needs to subsidise these as promised which has not been carried out.

In this context Dr. Weerakoon said that while the state banks will be forced to carry out these proposals other banks should also be willing to do so as the money is being provided by the World Bank.

Commenting on the low female participation, she pointed out that this was mainly found to occur in the case of the lower strata of the workforce and not the highly educated females.

Senior Lecturer in Economics, University of Colombo Dr. Priyanga Dunusinghe observed that the budget does not reflect the economic reality and insisted that the proposed loan schemes were unlikely to address issues like the movement of labour from the agricultural sector to the low productive service sector.

Loss of productive hours and labour force participation is imperative under the current public transportation system and in this context the government had not addressed to this issue, he pointed out.

Dr. Dunusinghe noted that he was not satisfied with the growth rate and insisted that the 4.8 per cent target set for 2024 was not satisfactory.

Responding to a query on the proposal to create space for local students in foreign universities, he said that this was a good option but it was unlikely to add to an increase in the human capital development.

Verite Research Director Subhashini Abeysinghe pointed out that it is imperative to ascertain whether the government has been using the tax money responsibly.

She noted that there needs to be more focus on budget formulation and ensure that the process of creating the budget be made more credible.